Can Special and Differential Treatment Reduce Poverty?

In January, the Trump Administration attacked the use of special and differential treatment (SDT), by virtue of developing country status, by China, India, Brazil, and a number of other countries (not to mention Singapore, South Korea, and Israel). The argument, focusing on China, is that China is the world’s leading trading nation and is as technologically advanced as any developed country. China responds that its GDP per capita is still low compared to developed countries. As we know, China’s coastal area is much wealthier than its interior. A broader group of developing countries also responded along similar lines.

The gravamen of the U.S. complaint is as follows:

There has been much discussion lately about staying committed to the "rules-based multilateral trading system." However, if you look behind the curtains, that system is hardly monolithic. All the rules apply to a few (the developed countries), and just some of the rules apply to most, the self declared developing countries.

The U.S. rejects this “binary” system of developed and developing countries, but then merely seeks to reduce the size of the category of “developing” countries with proposed new definitions.

In the background of this debate is the serious question in the economics literature whether SDT actually helps developing countries. For example, Ornelas suggests that the structure of SDT is biased against developing countries. One core issue is that, as Hoekman and Hudec have pointed out, SDT makes it harder for developing countries to negotiate for liberalization in wealthy countries with respect to products in which they have export interests. In any event, there is not much evidence that SDT increases growth or reduces poverty, and as the U.S. points out, there is a growing systemic cost.

It is difficult to envision how this negotiation can proceed. Countries currently “benefitting” from SDT will not easily accept a re-definition that excludes them. At the same time SDT is a blunt instrument in terms of both country eligibility and economic development “recipe.”

Perhaps it is time to substitute a more refined, and at the same time more flexible, mechanism, one which allows as an exception from WTO commitments any measure by any state where the measure is found to have reasonably anticipated poverty reduction effects, so long as the trade burdens on foreign persons are not disproportionate in relation to the poverty reduction benefits. These things are tough to measure, I know. But we have models in the SPS Agreement and TBT Agreement, in terms of (i) poverty reduction effects, and (ii) proportionality.

We can compare poverty reduction effects to the requirements for “risk assessment” and “scientific evidence” in the SPS Agreement—the analog would be “benefit assessment” and “economic evidence.” Yes, economists have many different views, but there is a methodological core of what counts as economics, just as there is a methodological core of what counts as science, and we have dealt in the SPS context with the fact that scientists have different views.

The proportionality formulation of Article 2.2. of the TBT Agreement seems more readily adaptable to the poverty reduction context than that of the SPS Agreement. Thus, something like “poverty reduction measures shall not be more trade restrictive than necessary to fulfill a legitimate poverty reduction objective.”

This is just a conjectured approach to resolving the question of how to allocate SDT treatment, and addressing the problem of poverty at the WTO with greater precision. By allowing any measure by any state, it would, for example, permit the U.S. to take action to protect impoverished communities.

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Can Special and Differential Treatment Reduce Poverty?

In January, the Trump Administration attacked the use of special and differential treatment (SDT), by virtue of developing country status, by China, India, Brazil, and a number of other countries (not to mention Singapore, South Korea, and Israel). The argument, focusing on China, is that China is the world’s leading trading nation and is as technologically advanced as any developed country. China responds that its GDP per capita is still low compared to developed countries. As we know, China’s coastal area is much wealthier than its interior. A broader group of developing countries also responded along similar lines.

The gravamen of the U.S. complaint is as follows:

There has been much discussion lately about staying committed to the "rules-based multilateral trading system." However, if you look behind the curtains, that system is hardly monolithic. All the rules apply to a few (the developed countries), and just some of the rules apply to most, the self declared developing countries.

The U.S. rejects this “binary” system of developed and developing countries, but then merely seeks to reduce the size of the category of “developing” countries with proposed new definitions.

In the background of this debate is the serious question in the economics literature whether SDT actually helps developing countries. For example, Ornelas suggests that the structure of SDT is biased against developing countries. One core issue is that, as Hoekman and Hudec have pointed out, SDT makes it harder for developing countries to negotiate for liberalization in wealthy countries with respect to products in which they have export interests. In any event, there is not much evidence that SDT increases growth or reduces poverty, and as the U.S. points out, there is a growing systemic cost.

It is difficult to envision how this negotiation can proceed. Countries currently “benefitting” from SDT will not easily accept a re-definition that excludes them. At the same time SDT is a blunt instrument in terms of both country eligibility and economic development “recipe.”

Perhaps it is time to substitute a more refined, and at the same time more flexible, mechanism, one which allows as an exception from WTO commitments any measure by any state where the measure is found to have reasonably anticipated poverty reduction effects, so long as the trade burdens on foreign persons are not disproportionate in relation to the poverty reduction benefits. These things are tough to measure, I know. But we have models in the SPS Agreement and TBT Agreement, in terms of (i) poverty reduction effects, and (ii) proportionality.

We can compare poverty reduction effects to the requirements for “risk assessment” and “scientific evidence” in the SPS Agreement—the analog would be “benefit assessment” and “economic evidence.” Yes, economists have many different views, but there is a methodological core of what counts as economics, just as there is a methodological core of what counts as science, and we have dealt in the SPS context with the fact that scientists have different views.

The proportionality formulation of Article 2.2. of the TBT Agreement seems more readily adaptable to the poverty reduction context than that of the SPS Agreement. Thus, something like “poverty reduction measures shall not be more trade restrictive than necessary to fulfill a legitimate poverty reduction objective.”

This is just a conjectured approach to resolving the question of how to allocate SDT treatment, and addressing the problem of poverty at the WTO with greater precision. By allowing any measure by any state, it would, for example, permit the U.S. to take action to protect impoverished communities.